MAYBE FOOD INFLATION IS THE KEY
Listen to episode →Hi guys, Russell here. So we've had like a last couple years big move in gold, which I would normally say is a bearish sign. And now I've had a big surge in the oil price which historically speaking has been a bearish sign. And yet equities, particularly US equities, are just powering higher. And I'm wondering if that is because historically oil and gold would be a good lead or contemporary syndicated on food inflation. And maybe it's food inflation is moving and that is why equities are doing so well. So like when I was first taught market theories, when I first started out of my management, one of the ones I heard was if the oil prices up 50% year on year, the S&P did poorly, conversely for oil prices weakled down, equities did well. Now oil is certainly up over 50% year on year. So that should be bearish, but like I said, we look at the equities, they've surged, after being sort of flat lying for a while, I've just surged new highs and certainly acting very bullishly. And I also learned to be cautious on the S&P 500 when gold started to outperform it, which has been doing since the beginning of 2025, but actually given the surge in the S&P recently in weakness and gold, that our performances has come down dramatically from when it was early in the year, again, a sort of bullish indicator. So why had moves in commodity prices used to be bearish, but not now? Because like in back in 2022, surging oil price did lead to weakness in US equities. So it's only a recent change if anything. So what's changed? So I'm guessing, like I said, that when oiling gold was surging, you would also have food and prices surging. But when we look at US food CPI year on year, it's below 3% at the lower end of the range. Back in 2022, it got up to over 10% and sort of the pre-GFC was 5, 6%, back in the 70s
was well over 10%. So obviously when food prices are surging, I think equities too badly is something we can look like a pretty decent argument. And the problem with of course is that the CPI measure is backward looking. If we use a CRB food stuff index, which is a bit more contemporary, you can see that you can see the food price spikes leading to rising CPI in the circle bits here, back in the early 90s, 2000s, and then 2022, so far, nothing is pointing to higher food prices out of this. This is a daily index, although this one's a bit lagging, but we've not seen any change yet. And that looks a little bit lagging. I think with the states, I found wheat, which is treated daily is a good one to watch. And again, you can see wheat has a long graph. You can see back in the 70s, a big spike in food, wheat prices was bearish recordies then. And we can see that wheat prices went up a lot in the 2000s, and again in 2022, so far it's up from lows, but not at levels that would seem remarkably bearish to me. Now you could make the argument, I've heard this from a few people, is that oil prices have pushed up the price of your year, which is a fertiliser, so food prices are going to go up later. Could be true, but if we look at like pot ash, it's still pretty low. And that went up a lot in 2022, so our argument's a bit mixed. The other one I would say that is problematic is that, you know, in the, in the, during COVID and in 2022, Chinese food supply was very constrained by African swan, through I've written about a lot, so go read about if you want. But wholesale pork prices in China are, you know, 20, you know, 15, 16 year lows here. And China's the biggest food market in the world, and pork is the biggest and most
important food in China. So if this is going down, like imports of soy, corn, and other things are going to stay pretty muted, or even not, not existing. So you know, the food story looks very different to the oil story, and the markets I think are reacting to the food story. And I've looked at agricultural markets in parts, not trading grains, but like agricultural stocks and other things, for 20 years or so. And I say, they are by far the toughest markets to understand. So usually with commodities, supplies pretty easy to model. You can also model a mine, pretty easy and demand, and supply tends to grow in an easily modeled way. But demand is what fluctuates. So suddenly you have a credit crisis or it's a housing bust or something like that. Vag is really the opposite. Demand is usually pretty constant. We all tend to eat the same pretty much every day, but it's a supply that can change radically. If you get, you know, bad weather or anything like that, then supply can drop off. So I guess the question I'm asking, I think markets are asking, is that, are we going to see food prices about to search here? So are we seeing your diesel, your rear-priced search, and now we're going to see food prices search? Maybe? I can't generate a strong view looking at this data points where the food and price is going to search from here or not. But I think food is really the missing link between the price action of gold, oil and equities. That makes sense. Stay safe. Yeah.